In this piece, we will take a look at the ten best inexpensive stocks to buy right now. If you want to skip our stock market analysis and a discussion of what makes a stock cheap, then head on over to 5 Best Inexpensive Stocks To Buy Right Now.
Investing comes in all sorts of flavors and options to suit whatever risk appetite an investor might have. For those that want to grow their money, the market is full of high growth stocks whose prices trade at significantly higher levels than their earnings per share. For those that are unwilling to take risks, value stocks offer a semblance of stability as their share price is mostly in line with earnings which makes the risk of a downturn significantly lower than the high growth companies.
One popular way of determining whether a stock is expensive or cheap is the price to earnings ratio. A cheap stock, as intuitive as it might sound otherwise, is not one whose share price is low. Instead, in the financial world, the 'cheapness' of the stock is measured through the ratio of its share price with its earnings. Now, since there are different earnings estimates of a firm, there are different P/E ratios as well. The true value of a company, or the real value, is the one at which its shares trade on the stock market. And its real EPS is the latest reported value in an annual release. The P/E ratio which uses the real values is called the price to current earnings ratio, or the current P/E ratio in short. A P/E ratio that takes into account the firm's latest performance is the trailing P/E ratio that uses the EPS value in the four latest quarters.
However, being the busy bees that they are, analysts are busy working their magic with a firm's balance sheet and income statements. These financial reports can be used to project a company's future financial performance, and a derived EPS value from these is an estimate of how well a company can perform in the future. This EPS can also be used with the existing share price, for a ratio officially dubbed as the price to forward earnings or the forward P/E ratio.
Yet, calculating a P/E ratio does not tell anything on its own about whether a firm is expensive or cheap. Instead, this metric is compared with peer values to determine where the firm stands. This bit is necessary since firms belonging in different industries often have wildly different P/E ratios. A firm's earnings are dependent on several factors, and the ratio of its profit to sales is called the profit margin. Companies, such as banks or software companies often have higher profit margins since they do not have to deal with expensive inputs for their products unlike manufacturing or industrial firms. These costs also affect the P/E ratio, and hence, each industry has its own ratios.
To understand this principle, consider Aswath Damodaran's collection of P/E ratios of different industries. Capital intensive sectors such as home building, steel manufacturing, and oil and gas exploration and production have current P/E ratios of less than 30. Compare this with the fact that software companies, non-bank financial services, and advertising agencies all have a P/E ratio greater than 100 and you'll understand the need of using peer values in an analysis. Of course, this is not a hard and fast rule when it comes to guessing what a firm's P/E ratio will be. After all, this value also reflects the share price, and for some capital intensive sectors such as aerospace, the market might be valuing the shares sufficiently high enough to cause the P/E ratio to jump.
Moving forward to the stock market, it looks like the beast of inflation that has roiled investors might finally be on its way back inside the bottle. Inflation in July came below what analysts were expecting, and to build to this, American consumers seem to be quite optimistic as well. The University of Michigan's consumer survey is a widely used metric to judge what Americans might be expecting for the future. And the survey's latest (and preliminary) results show that the year ahead inflation expectations stand at 3.3% in August to be slightly down from 3.4% in July.
For the stock market, August is often a slow month as traders generally choose to enjoy a summer vacation. However, the market does not shut down, and right now, it's looking as if there might be some profit taking going on when it comes to big tech names such as NVIDIA Corporation (NASDAQ:NVDA) and Tesla Inc. (NASDAQ:TSLA). They rank among the best performing stocks this year, but performance in August has been muted as investors remain uncertain about whether the Federal Reserve might finally stop hiking interest rates especially since core inflation is still not below the central bank's preferred 2% reading.
Additionally, the damp market sentiment is being influenced by other factors as well, one of which is the equity risk premium. This measures the difference between the earnings yield of the S&P 500 and the yield of a ten year bond. The number shows how much more investors can expect a stock to yield when compared to a bond, and the data for Q2 shows that the figure fell to nearly 4% by Q2 2023 end - its lowest value since the 2008 Great Recession and financial crisis. This concerning figure shows that stocks might be getting overvalued a bit, which can lead to a surprising correction later on.
With these details in mind, let's take a look at the best inexpensive stocks to buy right now, out of which the top picks are Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), JPMorgan Chase & Co. (NYSE:JPM), and Bank of America Corporation (NYSE:BAC).
10 Best Inexpensive Stocks To Buy Right Now
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Our Methodology
To compile our list of the best inexpensive stocks to buy right now, we made a list of the forty largest companies with a price to trailing earnings ratio of lower than 20 and an average analyst rating of Buy. Then, the number of hedge funds that had bought their shares as of Q1 2023 was determined courtesy of Insider Monkey's database of 943 hedge funds, and the list of top inexpensive stocks to buy right now is as follows.
Pfizer Inc. (NYSE:PFE) is a global pharmaceutical giant. It's struggling to post profits that were similar to those that it had earned during the coronavirus pandemic, and the share price reflects these struggles.
During 2023's March quarter, 73 of the 943 hedge funds polled by Insider Monkey had bought Pfizer Inc. (NYSE:PFE)'s shares. Jim Simons' Renaissance Technologies is the largest shareholder among these with an investment of $495 million.
Pfizer Inc. (NYSE:PFE) joins JPMorgan Chase & Co. (NYSE:JPM), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Bank of America Corporation (NYSE:BAC) in our list of the best inexpensive stocks to buy now.
Like other petro giants, Exxon Mobil Corporation (NYSE:XOM) has also come down from its 2022 highs in 2023 as the global oil supply normalizes. It scored a win in August though when the World Bank's court awarded it $77 million in a decade-long claim against Venezuela.
73 of the 943 hedge funds part of Insider Monkey's March quarter of 2023 research had invested in the company. Exxon Mobil Corporation (NYSE:XOM)'s biggest investor is Rajiv Jain's GQG Partners with a $2.1 billion stake.
The Cigna Group (NYSE:CI) is an insurance provider that serves the needs of customers with several different kinds of coverage plans. It beat analyst EPS estimates for its second quarter and the stock is rated Buy on average.
Insider Monkey dug through 943 hedge funds for their first quarter of 2023 investments and discovered that 79 had owned a stake in The Cigna Group (NYSE:CI). Out of these, the firm's largest shareholder is Ken Griffin's Citadel Investment Group since it owns $520 million worth of shares.
Citigroup Inc. (NYSE:C) is an American bank that is more than two centuries old. The bank's latest estimate about the S&P 500 index sees it closing the year at 4,600 points.
During this year's March quarter, 79 of the 943 hedge funds part of Insider Monkey's database had held a stake in the bank. Citigroup Inc. (NYSE:C)'s biggest investor is Warren Buffett's Berkshire Hathaway through owning 55 million shares that are worth $2.5 billion.
Elevance Health, Inc. (NYSE:ELV) is another healthcare benefits and insurance firm. The firm's been having a great time in its market these days, as it has beaten analyst EPS estimates in all four of its latest. Perhaps this is also why the shares are rated Strong Buy on average.
81 of the 943 hedge funds part of Insider Monkey's research had invested in the firm during Q1 2023. Elevance Health, Inc. (NYSE:ELV)'s largest stakeholder among these is Andreas Halvorsen's Viking Global with an investment worth $990 million.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), Elevance Health, Inc. (NYSE:ELV), JPMorgan Chase & Co. (NYSE:JPM), and Bank of America Corporation (NYSE:BAC) are some inexpensive stocks seeing hedge fund interest.
